The Affordable Care Act, commonly known as Obamacare, has lived its relatively short life shielded like a Chinese emperor by its unprecedented collection of mandates, subsidies and tax credits intended to extend government-subsidized health insurance to ever more Americans. Since it was signed into law in 2010, controversies surrounding the law have grown more complex rather than simplified.

Those controversies quickly spread to state legislatures around the country, first on the issue of whether to create state agencies to distribute the law’s insurance subsidies, styled as “exchanges” (33 states declined). This year, the focus is whether to accept the law’s expansion of Medicaid — originally mandatory, but made optional for states by last year’s Supreme Court ruling on individual mandates.

In many states, including Michigan, the debate has revolved around the possibility of getting something the state wants in return for something the current administration wants. Specifically, the Administration wants every state to approve the Medicaid expansion, because it is a key component of the law’s implementation. Certain states want federal approval for reforms to the Medicaid program that would, according to most health care analysts, save money and create better incentives for benefit recipients.

Michigan Republicans originally demanded a slate of rigorous reforms, including a 48-month cap on benefits for able-bodied adults. Importantly, they demanded that the federal government grant approval for these in advance, with no Medicaid expansion until they do. Many viewed these conditions as “poison pills,” intended to guarantee a “no” answer from Washington. This would have let legislators tell the powerful hospital lobby — the chief state-based advocate for the expansion — that they had tried to make a deal.

In the end, however, House Republicans succumbed to the pressure and passed a bill that lets the expansion proceed immediately, and which proposes much less stringent reforms that won’t go into effect unless and until they are approved by the Obama administration — a doubtful prospect.

The bill does contain an “opt out” provision that would rescind the expansion if approval is not granted. However, once hundreds of thousands of new people are enrolled on the state Medicaid rolls and federal dollars are rolling in to cover most of the cost, the chances of the Legislature opting out are unlikely.

As this issue of IMPACT goes to press, the bill is pending in the state Senate.

The Health of a Nation

Americans generally agree that no person whose health depends on medical attention should be unable to get it simply because they can’t afford it. Related, most people don’t think individuals who suffer from chronic health problems should be burdened with insurance premium costs far beyond the reach of most regular people. States have adopted various strategies to address this “pre-existing conditions” problem, including subsidized high-risk insurance pools, and in Michigan, establishing Blue Cross Blue Shield as an “insurer of last resort,” with subsidized coverage enabled by tax exemptions for the insurer and other means.

Obamacare was intended as a one-size-fits-all national solution to this problem, replacing a patchwork of state programs, some more effective than others. A key component was expanding Medicaid eligibility to everyone with an income up to 138 percent of the federal poverty level, including childless adults (who with some exceptions were not previously eligible even at lower income levels).

However, most health care policy experts agree that Medicaid delivers mediocre health outcomes to its “beneficiaries” at a tremendous cost to current taxpayers (and future ones given that much of the expense contributes to the national debt). In short, Medicaid isn’t delivering its intended results for the $389 billion spent on it by federal and state governments in 2010.

Recently, this view received further support from a critical and ongoing Oregon study of Medicaid. This study is regarded as a “gold standard” because unique circumstances allow it to test a randomized population sample with little “selection bias.” Specifically, the state used a lottery to determine who would get benefits under a limited Medicaid expansion. This allowed researchers to compare the population of “winners” against a population that is essentially identical except for one thing — their number didn’t come up in this benefits lottery.

For that reason, it created a buzz in health care policy circles earlier this year when the researchers announced they could find “no significant improvement in measured physical health outcomes” attributable to Medicaid coverage.

Avik Roy, senior fellow at the Manhattan Institute, described the findings this way: “If Medicaid were a new medicine applying for approval from the Food and Drug Administration, it would be summarily rejected. … Most importantly, the Oregon results on health outcomes are consistent with a mountain of clinical evidence showing that Medicaid makes no meaningful difference, at best, compared to being uninsured.”

And like many other health care policy experts, that’s what really bothers Roy most about Medicaid. He writes,

“But I want to make clear that I’m not opposed to spending that sum of money on health care for the poor. What I’m opposed to is wasting that sum. … There are so many market-based alternatives to Medicaid, alternatives that would offer uninsured, low-income Americans the opportunity to see the doctor of their choice, and gain access to high-quality, private-sector health care.”

Teach Your Children Well

A notable moiety of the law’s supporters initially could be found in young voters. Before the implementation of the Affordable Care Act, MIT economist Jonathan Gruber, the architect of the law, asserted that in 2016, young people would save 16 percent on their health care premiums. We’re halfway to 2016 since the passage of Obamacare and it appears even Gruber is swallowing a hard pill that those premiums are most definitely more expensive.

This is due to the law’s “community rating.” Under the Affordable Care Act, insurers can charge the elderly only three times what they charge the youngest customers. Why is this problematic? Because health expenditures for these older members are, on average, six times more costly than those required by younger members. This redistributes the cost of insurance unduly on those who are just starting out in the workplace.

The trials facing young workers in the health care market do not stop there. When this community rating provision butts heads with the individual mandate and the coverage requirement, young workers’ premiums skyrocket. Young workers are generally healthy and less likely to have health insurance — while they may be required now by law to purchase health insurance (or pay a nearly $700 penalty by 2016), they will most likely not be able to afford it due to the inflated premium prices. Even $695 means a hefty portion of an entry-level salary, particularly in a national job market that is stagnant.

Because taxpayer-funded insurance subsidies exist, young workers will most likely have to resort to these to live sufficiently within the confines of the new law. This will only increase the cost of health care for everyone.

What’s Next for Michigan?

If Michigan’s Legislature approves the expansion, then childless adults and families with incomes up to 138 percent of the poverty level will be eligible for the Medicaid program. In the short-term, federal funding promises will allow around $200 million in current health welfare spending to be shifted from the state budget onto the federal. By 2020, however, Michigan taxpayers will be forced to come up with an additional $300 million annually to pay the state’s share of the expansion, a burden that will mean some combination of higher taxes and fewer services in other areas, such as education or public safety. The Heritage Foundation has estimated the expansion will cost Michigan taxpayers $1.3 billion by 2022.

The experience of other states suggests a much higher cost than these estimates project. Some states that expanded Medicaid in the past, including Arizona and Maine, saw costs explode using methodologies similar to the Michigan projections. In Arizona, the actual costs were four times higher than projected. In Maine, more than twice as many people signed up for the expansion than projected. In both cases, many new enrollees didn’t come from the ranks of “the uninsured,” but were individuals who had dropped private insurance to get “free” coverage.

This “crowd-out” effect of a government program replacing private insurance is almost sure to accompany Medicaid expansion in Michigan. Estimates vary, but one study conservatively estimates that Medicaid expansion will result in a crowd-out rate of about 29 percent.

Conclusion

Obamacare’s intent was to ensure that more uninsured people were provided insurance than before by the government. But does that solve the problem?

The results are steadily streaming in, and they all seem to say that Medicaid not only doesn’t provide better health care coverage for many people in this country, it often provides worse care — while simultaneously draining the pockets of those who could afford care for themselves.